Valuation, depreciation and the rate base

Bibliographic data

Monograph

Identifikator:: 174667931X

URN:: urn:nbn:de:zbw-retromon-119897

Document type:: Monograph

Author:: Grunsky, Carl Ewald http://d-nb.info/gnd/10180959X

Title:: Valuation, depreciation and the rate base

Edition:: 2. ed., revised and extended

Place of publication:: New York

Publisher:: Wiley

Year of publication:: 1927

Scope:: X, 500 Seiten

Digitisation:: 2021

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Chapter V. Elements which reduce value

Collection:: Economics Books

ELEMENTS WHICH REDUCE VALUE woven with the depreciation question, as ordinarily handled, that no attempt will be made to restrict the discussion to depre- ciation. Information bearing upon amortization and the re- placement requirement will here be found intermingled with the general discussion of the depreciation question. Assumptions Made in the Discussion. — The general presen- tation of the problems involved in determining what should be the fair earnings of a public utility will be simplified by assuming that the actual useful life or term of service of each of its parts will conform with the probable life term predicted for these parts. This is not in reality the case. In the preliminary presentation of the subject, however, this assumption has been strictly adhered to. How the departure of the actual term of usefulness from the probable term will affect the computation of the annual replacement requirement will be considered later. It has been found convenient to use an interest rate of 6 per cent throughout this volume for purposes of illustration and this rate is to be understood when no other rate is mentioned. Hypothetical Case; 20 Year Life, 10 Years Old. — Take the case of a plant, all parts of which have a life of 20 years, all constructed at one time and owned by a prudent owner who sets apart at 6 per cent interest, as an amortization fund, each year $0.027185 for every dollar invested therein. If the plant is one which will actually net 6 per cent on the invested capital, then the apparent excess of the annual earnings, over expenses, should be $6 + $2.72 = $8.72 continuously during the life of the plant, and the owner, in estimating the price at which he can sell it without loss at the end of any period, as, for example, at the end of 10 years, would figure as follows (for each $100 of original investment): Investment (original).......... +... $100.00 In the amortization fund: being the amount of a 10-year an- nuity of $2.7185 at 6 per cent interest................... _ 35.83 Remaining value. ....... cersanessrnsseee. $64.17 A prospective purchaser would figure that the plant should be worth at least as much as the present value of $8.72 per 8¢

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